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Argentina's Congress Passes Controversial 'Tech Tax'

BUENOS AIRES -(Dow Jones)- Argentina's Congress on Wednesday passed a law to double the value-added tax on cellphones, televisions, cameras and other items.

President Cristina Kirchner had proposed the law earlier this year to boost flagging government revenue and stimulate local manufacturing and job growth.

It will double to 21% the value-added tax on most electronics goods not produced in the Tierra del Fuego special economic zone.

Critics said the law will decrease imports and increase the cost of electronic items, which are already more expensive here than almost anywhere else in the hemisphere.

"This will increase the digital divide for millions of Argentines," said opposition leader Francisco de Narvaez of the Union Pro party. "It will strongly benefit the assembly industry in Tierra del Fuego to the detriment of industries in provinces like Cordoba, Buenos Aires, San Luis and Santa Fe."

Fernandez has actively sought to curb imports in a bid to spur investment in production in Tierra del Fuego.

The president recently said the law will lead to "fewer dollars that leave the country to pay for imports and more jobs for all Argentines."

However, the Chamber of Information Technology and Communication, which represents multinational firms here, said the higher taxes could boost prices for products like computer monitors and cellphones by as much as 34%.

That, in turn, could lead to fewer sales and a broader decline in value-added tax revenue.

It could also make Argentina's economy less competitive by limiting access to technology, the chamber said.

In the 1970s, Argentina began offering tax incentives to electronics companies establishing operations in Tierra del Fuego to spur development in the isolated southern archipelago. Today, operations there remain modest and are mainly limited to assembling imported parts.

Afarte, an association representing manufacturers in the province, celebrated the news.

"This a step forward that will be remembered as a historic day because the new law will spur national production of certain consumer electronics items that are only produced in Tierra del Fuego," Afarte President Alejandro Mayoral said in a statement.

Argentine-based manufacturers as a whole account for only about $300 million of Argentina's approximately $4 billion market in telecommunications and computer goods, according to a study by academics from Columbia University and Argentina's San Andres University.

-By Taos Turner, Dow Jones Newswires; 5411-4103-6728; taos.turner@dowjones.com

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